Market Volatility

by Carl Spiess

The last four weeks have seen the sharpest drop in the Canadian equity markets in the last 4 years. We are now
below the levels that the TSX was at six years ago in 2000 (see TSX Returns chart, below).

Some of the pullback is not unexpected, as many resource prices had risen much more quickly than economic growth
would have indicated. For example, natural gas, which was at over $15 per MBtu based on predicted demand in December
is now at $6 per MBtu, as stockpiles have risen significantly in the last six months. No wonder that energy stocks
have recently declined. And while there is no denying that there will continue to be global demand in China, India
and other developing economies, there is always risk that future growth rates for these emerging markets may not be
as strong as expected.

How much lower prices will go during this correction is the question. Unfortunately, no one has the answer. Faced
with this uncertainty, your best bet for protecting your investments continues to be diversification. A well
diversified portfolio that has an appropriate balance between equities and fixed income and investments from a broad
array of sectors has the fortitude to weather the ups and downs of the markets. And, when a correction occurs, you
may just find some bargains to top up the equity portion of your portfolio. There is still good value in the
equities markets (see Federal Reserve Valuation Example, below).

Equities are still good value: Federal Reserve Valuation Example

We can certainly say that stocks present a better value now
than they did 2 months ago, and even factoring in the expected rate increases by the US Fed and the Bank of Canada,
the dividend payout on many Canadian stocks present real value compared to t-bill returns.

The current fed model (relative value of S&P 500 earnings per share vs. the US short term interest rates) suggests
that due to the massive increase in corporate profitability in the last 3 years, stocks are still a bargain (see
Valuation chart, below).

And if rising inflation is the key driver in the recent changes in economic sentiment, investing in companies who
can raise prices should be a better growth option than buying bonds where you only get a nominal interest rate.

While we absolutely hate seeing months where your statements go down, and do share the pain financially as well,
the reality is that fluctuations are a normal part of investing for the long term. And for those adding lump sums to
their accounts or those making regular payroll or pre-authorized contributions, the pullback is actually a buying
opportunity.

Please do contact us if you have questions on how the recent market moves have affected your account and to review
your asset allocation and risk tolerance if needed.

More on market volatility

Fidelity International Portfolio becomes Fidelity Global Fund

Fidelity has renamed its flagship equity fund to better reflect that it invests both overseas and in North
America. The general terminology these days is that international funds have no Canadian or US holdings, and global
funds go anywhere in the world and this new name reflects that. The fund holds more than 400 stocks, and while most
global funds still haven't regained their highs from 5 years ago, it has consistently beaten its index, after fees.

More on the Fidelity Global fund

iUnits become iShares

Barclays Global Investors Canada has changed the name of its Toronto Stock Exchange-listed family of
exchange-traded funds (ETFs) from iUnits to iShares. This aligns its ETF brand identity with its global counterparts.
ETFs are bought and sold like stocks and can be held in your ScotiaMcLeod investment accounts.

More on ETFs

Recommended Reading: Investment Portfolio Quarterly

This quarter's update presents some ideas on how to diversify internationally using ETFs (recommended) and
information on understanding structured products (only with a great deal of due diligence). See:

Recommended Surfing: Find the Money

The Bank of Nova Scotia has a suite of online tools at to provide practical information about buying a home,
borrowing or renovating. The site features calculators, articles and tools designed to help Canadians manage their
home ownership needs:

More on Find the Money

Your Team Keeps Working Together and Working for You

Scotiabank was once again ranked as one of the 50 best employers in Canada. And your investment team at
ScotiaMcLeod, takes that to a whole new level. Seven of the ten key team members have been working together for
10 years now, and we have had no turnover in the last 3½ years. This summer we welcome student Claudia Ochoa to the
team, who is helping us update information in our client files: you may well be getting a call and an update form
shortly.

In May, your investment team held a team-building exercise in the beautiful forests of Collingwood. In addition
to our meetings on client satisfaction measurement and strategy, we managed to find some time for a little fun - see
photo for a glimpse of the eco-adventure portion of our work weekend.

With most of our clients' emails bouncing back in the summer months, we will be skipping the July edition of the
newsletter and look forward to our "Back to School" edition. Please do not hesitate to contact us if you have any
questions though in the interim.

More on your investment advisory team

We apologize that our normally complete, up-to-date and searchable fund performance data tables are currently
not completely functional. If you don't use our Secure ScotiaOnline service to see your account specific fund
information, we recommend you visit Scotiabank's data provider Morningstar, to look up details on your funds'
holdings and recent performance.

® Registered trademark of The Bank of Nova Scotia, used under licence. ™ Trademark of The Bank of Nova Scotia, used under licence. Scotia Wealth Management™ consists of a range of financial services provided by The Bank of Nova Scotia (Scotiabank®); The Bank of Nova Scotia Trust Company (Scotiatrust®); Private Investment Counsel, a service of 1832 Asset Management L.P.; 1832 Asset Management U.S. Inc.; Scotia Wealth Insurance Services Inc.; and ScotiaMcLeod®, a division of Scotia Capital Inc. ("SCI"). Wealth advisory and brokerage services are provided by ScotiaMcLeod, a division of SCI. Insurance services are provided by Scotia Wealth Insurance Services Inc., the insurance subsidiary of SCI. When discussing life insurance products, ScotiaMcLeod advisors are acting as Life Underwriters (Financial Security Advisors in Québec) representing Scotia Wealth Insurance Services Inc. SCI is a member of the Canadian Investor Protection Fund and the Investment Industry Regulatory Organization of Canada.

The Spiess McGlade Team is a personal trade name of Carl Spiess and Allan McGlade.